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Executives

Jean Fontana - ICR

Ed Rosenfeld - Chairman & CEO

Analysts

Scott Krasik - BB&T Capital Markets

Camilo Lyon - Wedbush Securities

Jeff Van Sinderen - B. Riley

Claire Gallagher - CapStone Investments

Sam Poser - Sterne Agee

Steven Martin - Slater Capital Management

Steven Madden, Ltd. (SHOO) Q3 2010 Earnings Call November 2, 2010 8:30 AM ET

Operator

Good day everyone and welcome to the Steve Madden third quarter 2010 earnings conference call. As a reminder today's call is being recorded. For opening remarks and introductions I would like to turn the call over to Jean Fontana of ICR. Please go ahead, Ms. Fontana.

Jean Fontana

Thank you. Good morning, everyone. Thank you for joining us for the discussion of Steve Madden's third quarter 2010 earnings results. Before we begin, I would like to remind you that statements in this conference call that are not statements of historical or current facts constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements involve known and unknown risks and uncertainties and other unknown facts that could cause actual results to be materially different from historical results or any future results expressed or implied by such forward-looking statements.

Statements contained herein are also subject to generally other risks and uncertainties that are described from time-to-time in the company's reports and registration statements filed with the SEC. Also, please refer to today's earnings release for more information on risk factors; this could cause actual results to differ.

Finally, please note that any forward-looking statements in this using this conference call cannot be relied upon as current after this date.

I would now like to turn the call over to Ed Rosenfeld, Chairman and CEO of Steve Madden.

Ed Rosenfeld

Thanks, Jean. Good morning and thank you for joining us today. We are pleased to deliver the highest quarterly sales and earnings in our company's history in third quarter 2010.

Consolidated net sales rose 31% to a 184.1 million and operating profit grew 32% to 37.4 million for 20.3% of net sales. Our performance reflects continued momentum in our core businesses as well as significant contributions from our newer business ventures.

Our wholesale business continued its strong performance. The net sales increasing 37% to 153.1 million as compared to a $112 million in the third quarter of last year driven by strong gains in both the footwear and accessories businesses.

On the footwear side, sales grew 34% to123.3 million versus 92.2 million last year driven by robust increases in the Madden Girl, Steve Madden Men's and international divisions as well as by the contribution from Madden our new men's brand that we introduced in December of 2009. Net sales also benefited from the transition of our footwear business with Wal-Mart from a buying agency model to a selling agency model which means its revenue is now recorded on the top line and not on the other income line on the income statement.

Madden Girl recorded the biggest sale increase in dollars in the quarter as continued strong sell-throughs retail resulted in an increased investment in the brand from all of Madden Girl's largest customers.

International was our fastest growing division on our percentage basis recoding 99% top line increase in the quarter. In addition to over 100% year-over-year increases in existing territories Asia and Mexico, we also had contributions from four new territories that we launched in the last six months, Saudi Arabia, Australia, Russia and Central America.

Our Men's business was another bright spot. In addition to a strong increase in our Steve Madden Men's business, we also continued to roll-out our new Madden brand. Madden made its first shipments to May Season in the quarter and we believe May Season is a very promising account for the Madden brand.

In wholesale accessories, net sales grew 51% to 29.8 million in the quarter compared to 19.8 million a year ago. In addition to the sales contribution from Big Buddha which we acquired in February of this year and which is performing ahead of expectations, our accessories segment recorded 26% organic growth on the top line in the quarter. This outstanding performance distributed by healthy gains in Steve Madden and Betsey Johnson's handbags and belts as well as the big increase in our price label handbag business with Wal-Mart through our Madden Zone division.

In our retail division, net sales increased 10% to 31.1 million versus 28.2 million in last year's third quarter, despite the fact that we've had six nets to our close-in since the end of third quarter last year. Thanks to Steve and his team, we believe our stores have never looked better in terms of merchandise assortment. The on trend product in our stores translated into outstanding results. We delivered a comparable store sales increase of 15.7% for the quarter driven by increases in both the units and AUR. Booties and Pumps were the main product drivers. For the 12 month ended September 30th 2010, our retail stores did $710 in sales per square foot. This compares to $628 in sales per square foot for stores open for the 12 month ended September 30th, 2009, this represents the first time our sales per square foot has been over 700 since the beginning of 2007. We closed two stores in the quarter ending Q3 with 82 company-owned retail locations including our internet store.

Consolidated gross margins for third quarter decreased to 42.1% from 44% in the comparable period last year and a declined wholesale gross margin was partially offset by an increase in retail gross margin.

Wholesale gross margin decreased to 38.8% in Q3 from 41.2% in the same period last year. Approximately half of the decline was related to mix shifts including the growth in our international business and the inclusion of our footwear business with Wal-Mart in the sales line. Both of these businesses carry a significantly lower gross margin than wholesale average.

The other roughly half of the gross margin decline was attributable to more off price sales versus a year ago driven by a couple of product categories that did not perform to expectations.

Gross margin in the retail division was 58.1% in the third quarter of 2010 compared to 55.2% in the third quarter of last year. 290 basis point increase was driven primarily by reduced promotional activity.

Turning to other income, commission and licensing income net of expenses increased 15% to 6.6 million in the quarter as compared to 5.7 million in last year's third quarter. Net commission income from our first cost business was 5.6 million, 15% increase over last year's figure of 5 million as strong growth from coals, barkers, Kmart and Target was enough to offset the effect of moving our Wal-Mart footwear revenue in to the sales line.

Net royalty income from our licensing business was up 29% in the quarter to 1 million driven by the outerwear, sunglasses, bedding and apparel categories. Operating expenses totaled 46.7 million in the third quarter or 25.4% of net sales compared to 39.1 million or 27.9% of net sales a year ago. The 250 basis point year-over-year improvement was primarily due to leverage on higher sales.

Operating income for the third quarter of 2010 rose to 37.4 million or 20.3% of net sales compared to 28.3 million or 20.2% of net sales in last year's third quarter. Net income increased 29% in the quarter to 22.9 million or $0.81 per diluted share compared to 17.8 million or $0.64 per diluted share in third quarter 2009.

Turning to our balance sheet. As of September 30th 2010, we had approximately 153 million in cash and marketable securities and no debt, with inventory of 44.5 million up from 29.7 million in the third quarter of last year. The increase in inventory is on top of a 27% decline in last year's third quarter due in part to a shift in timing of shipments. We are comfortable with our current inventory levels. Our inventory turn for the last 12 months increased to 9.7 times, up from 9.5 times a year ago. Accounts receivable and due from factor totaled $94.7 million at the end of the third quarter reflecting average collection in 55 days.

Total stock owners' equity as of September 30th, 2010 was $334.3 million. In addition to delivering solid financial results in the quarter, we also made progress on a number of new initiatives which we believe provide meaningful growth potential going forward. I would like to touch on those now. First, in July we made our first shipments of Material Girl footwear, handbags, and belts as well as our first deliveries of Big Buddha footwear.

Material Girl is a new juniors brand carried exclusively at Macy's. We are currently in approximately 200 Macy stores with Material Girl product. Big Buddha footwears capitalizing on the success of Big Buddha handbags with distribution in specialty stores, better department stores and shoe chains. We are pleased with the initial performance of both of these brands and believe they represent significant growth opportunities for the company.

With that we moved in that with our plans to test an outlet store concept. We hired an experienced executive to lead this effort in the third quarter and we expect to open our first outlet store in the Tanger Outlet Center in Riverhead New York later this month. We are also close to signing approximately five more leases for outlets that is scheduled to open in 2011. Third, we continue to expand our network of international distributors. We signed new partnership agreements for Benelux and Dubai in the quarter. We will launch Steven Madden in these territories in early 2011.

In addition, we are currently in discussions with potential partners in South Africa and India, hope to be able to launch in those territories in 2011 as well. And last but not least in early October we acquired the Betsey Johnson and related brand names. We are very excited about the potential of the Betsey Johnson brand and the opportunities this transaction provides to our company.

We took over licensing agreements with a number of licensees including for jewelry, and for apparel, swimwear, eyewear, outerwear and leg wear. These businesses currently generate approximately 3.5 million in annual royalty income. In addition we of course no longer have to pay royalty on our Betsey Johnson and Betseyville handbag and belt business which at our current level of sales saves us approximately 1.5 million per year.

We have also signed 3 new licensing agreements for Betsey Johnson so far, gave Betsey Johnson's LLC, the company that formally owned the brand the license to market Betsey Johnson and Betsey Johnson collection apparel and a license to operate Betsey Johnson retail stores. We gave extension on accessories, a license for Betsey Johnson's cold weather accessories and of course we are also hard at work on Betsey Johnson shoes.

Plan on showing Betsey Johnson footwear at the December Shoe Show and making initial shipments to customers by the beginning of April. Overall, we expect the transaction to be slightly accretive to EPS in Q4 2010 and to add approximately $0.10 in diluted EPS in fiscal 2011.

Before I turn to guidance, I would like to provide an update regarding rising costs in China. We are currently seeing increases in our cost of goods from Southern China averaging approximately 5 to 8%. As I discussed in the last call we are working to mitigate this pressure by moving more production to the north of China where cost remained lower and to a lesser extent by shifting some production to other countries such as Mexico.

We are also raising prices on select items with fresh materials or styling and have so far not seen resistance to these price increases. Putting this all together, the net impact of all these changes on gross margin was negligible in Q3 and we expect that to be the case in Q4 as well.

Now on to guidance. For fiscal 2010, we currently expect net sales will increase 24 to 25% compared to fiscal 2009. Diluted EPS is expected to be in the range of 257 to 262. This compares to previous guidance of diluted EPS in the range of 245 to 255.

In conclusion it is an exciting at Steven Madden. Our core business has great momentum, our recent initiatives are bearing through and we continue to add new growth vehicles. We look forward to reporting back to you again after our fourth quarter.

Now I would be happy to answer any questions that you may have.

Question-and-Answer Session

Operator

(Operator Instructions). And we will go first to Scott Krasik with BB&T Capital Markets.

Scott Krasik - BB&T Capital Markets

Maybe talk about was there any change in the cadence of sales or the momentum around boots, obviously a lot of people reported very early strong momentum. Did you see that tail off at all in September and then maybe any color that you could give either out of your own stores or what you are hearing from your retailers in terms of sell through on boots now.

Ed Rosenfeld

Yes boots and booties continue to be very strong for us. This year as compared to last year, there has been a little bit of a shift from boots into booties which the booties do carry a slightly lower AUR, but the sell-throughs have been very strong. We have got a lace up booty right now that's about as hot an item as we have had here at Steve Madden. So, we still feel very good about that category.

Scott Krasik - BB&T Capital Markets

And at least relative to early momentum in this late summer, early fall. It just continues to build, to accelerate or it stayed the same?

Ed Rosenfeld

Particularly in our retail stores, we had more boot and booties selling earlier in season this year than we did last year, but the momentum has continued to be strong.

Scott Krasik - BB&T Capital Markets

And then comment on the gross margin, the wholesale gross margin seems to inflect a little earlier than we thought. What was the reason for the authorized sales or did it just reflect the fact that you had so few last year that it was just such a clean margin last year?

Ed Rosenfeld

Well I think it was a couple of things. One is we did have a very tough comparison last year it was very, very clean. So that was part of it, but we did have a couple of categories I mentioned that didn't perform up to expectation. When we talked about this on our board meeting the other day, I said to our board that the fashion business has a way of keeping you humble because I think our brand is basically the highest shoe brand in the market and I think our product overall is better than it's ever been, but we did have a couple categories that didn't perform as we expected.

One was flat suede boots, that's something that we've had a lot of success with for a couple of years, and it's just slowed up faster than we anticipated. It seems that leather is so much stronger than suede this year and then the second was woods. That's something where we got very strong test in our retail stores and when we got into wholesale it just really just dropped dead and that's going to happen sometimes. We think the rest and react model is great and helps us to mitigate a lot of fashion risk, but it's not going to be perfect and sometimes you're going to have something die like that.

Scott Krasik - BB&T Capital Markets

And then any visibility obviously you guys work pretty close to season, but we seem to be at the end of a sandal cycle. Last year you got some good early leads on pumps. Are retailers still excited about pumps for spring or boots can drive early spring sales? What's your outlook in terms of fashion direction?

Ed Rosenfeld

Yes, I think pumps, people still feel good about pumps and we got some other things that we're pretty excited about. We've just started Rob Schmertz of course and he was very excited yesterday about some early spring tests that we gotten in our Florida stores. Of course I am not going to tell you what those are for competitive reasons but we feel good about our spring product.

Operator

Our next question will come from Steve (inaudible) with CL King.

Unidentified Analyst

Your sales aggregate was up 31% on year-over-year basis excluding the Big Buddha acquisition and the reclassification of Wal-Mart. What was organic sales up year-over-year for the quarter?

Ed Rosenfeld

Well Big Buddha added about 5 million in the quarter. I think between the two of them you are talking about roughly $10 million in sales.

Unidentified Analyst

Okay. And can you comment a little bit on inventory levels year-over-year if I heard you correctly was up 50%?

Ed Rosenfeld

Yes, that's right. I think one of the things that you have to look at there is that the number last year was artificially depressed. Last year our Q3 inventory was down 27% year-over-year despite the fact that we were growing sales in Q4 at the upcoming quarter by 17% and in fact a year ago on this call we talked about how that was unusual and do in large part to a change in the timing of delivery. So I think it's probably (inaudible) look at this on sort of a two year staffed basis and on that basis inventory on the two year on the stack is up 9% while Q4 sales based on our guidance up about 30% and so we do still continue to feel comfortable with inventory levels. At the end of Q3 we had about five weeks of wholesale inventory and about 11-12 weeks of retail which we feel comfortable with.

Unidentified Analyst

Okay is any of the slower growing category that you referenced during the third quarter, is any of that inventory building up currently? Do you feel that you are out of that and that everything is as clean as it can be?

Ed Rosenfeld

Yes we have moved through most of that already.

Unidentified Analyst

Okay last question is pricing from China, you mentioned in the 5% area you are seeing it right now. Do you have projections or have you thought about next year and where those costs are going and raw material as well as labor?

Ed Rosenfeld

Yes I mean I think for the overall cost we are still looking at that sort of 5% to 8% number. Its obviously been trending up a little bit so does that end up more towards the higher end of that range for next year, that's certainly possible.

Unidentified Analyst

Okay lastly your ability to price at the lower end to mid-tier and lower like the coals in pennies in Wal-Mart. Do you find that to be different than what you are experiencing at Macy's and above?

Ed Rosenfeld

You mean to increase price?

Unidentified Analyst

Correct. To pass along the cost increases.

Ed Rosenfeld

Yes, I think generally speaking as you go to the more value priced channel, its going to be more difficult, but the good news for us is that our product is fashion and I think its easier to take price when you have fashion and when you have new fresh looks than if you are doing real basic products, those kind of accounts.

Operator

Our next question comes from Camilo Lyon with Wedbush Securities.

Camilo Lyon - Wedbush Securities

I was hoping you could expand a little bit on the Betsey Johnson opportunity particularly as it applies to the wholesale for ware business next year and where you think you can really wrap that up?

Ed Rosenfeld

If we just take a step, the Betsey Johnson transaction is something we're really, really excited about. We think it was a pretty special opportunity to get a control of an iconic brand like Betsey Johnson at a very attractive valuation. I don't think its too often that you're going to be able to pay 27.5 million and get an authentic designer brand with the kind of following that Betsey Johnson has and takeover day one licensing business that's generating 3.5 million of annual royalty income and save yourself 1.5 million of annual royalty income on the handbags and belts and get to a do a shoe opportunity which you think is very big. I mean we mentioned that we'd be disappointed if we can't do sort of 10 million year one and I think that really that should be a 20 million business over a couple of years for us pretty quickly and we've already signed a couple of new licenses. We are going to have additional licensing income from the apparel and from the cold weather accessories and we think that there is a big opportunity in a lot of these categories to really supercharge the growth here by taking the prices down a little bit without of course cheapening the brand or do anything to hurt the integrity of the brand. So this is something that we're really excited about. We talked about $0.10 of accretion for next year, but we really think that two to three years out, that could be 0.20 or $0.30

Camilo Lyon - Wedbush Securities

Sounds great and what about opportunities to go into different distribution channels, what does that look like?

Ed Rosenfeld

With Betsey Johnson?

Camilo Lyon - Wedbush Securities

Yes.

Ed Rosenfeld

Our feeling right now is that we want to keep Betsey Johnson in the existing distribution channel. So it's going to be primarily focused on the better department stores, the Nordstrom's, Dillard's, Macy's of the world. But as I said, we do believe that there is an opportunity within those same distribution channels to bring the prices down a little bit. In shoes for instance if the average prices right now are about 150 to 240, we are going to be doing shoes that the bulk of them will be in the 90 to $150 range.

Camilo Lyon - Wedbush Securities

And I think you already said that you are working on that already for spring deliveries. Is that right? Spring '11 deliveries?

Ed Rosenfeld

Yes we would be hoping to ship sort of 325.

Camilo Lyon - Wedbush Securities

Got it and then just last one on the gross margin side, as it relates to the international business. With the gross margin pressure there, which are going only by the distributors be in a lower margin business?

Ed Rosenfeld

That's right; our international business is always going to be meaningfully lower than the wholesale average because we go through these third party distributors.

Camilo Lyon - Wedbush Securities

And any sense as to what delta is roughly between the two? The margin…

Ed Rosenfeld

We really haven't disclosed that, but it's significantly lower.

Operator

Our next question comes from Jeff Van Sinderen with B. Riley.

Jeff Van Sinderen - B. Riley

Just to clarify that on the merchandise that float into the off-price channel, it sounds like you do not expect a similar increase in off-price for Q4. Is that the first statement?

Ed Rosenfeld

No, you won't have the same kind of impact that you had in Q3.

Jeff Van Sinderen - B. Riley

Okay, good to hear. And then may be you can just talk a little bit about where you are with the full priced retail stores. I know you've closed some and you are getting really strong performance out of your existing comp store base. How many more in the fleet of full price do you think you want to close and then also, are you seeing some better locations to perhaps open if you more a full price and then also if you can just comment on the outlet store opportunity.

Ed Rosenfeld

Sure, well then, as you said, we are seeing much, much better trends out of our retail stores and we're really pleased with the progress we've made there. In terms of continued closures, we're looking at probably four to six closings next year and beyond that it's probably, its really too early to say. But that is a smaller number of closings than we've had the last few years. We did seven in '08, seven in '09 and eight this year.

And then in terms of full priced openings, we've got two leases assigned right now. One for Q4 opening and one for next year and we're going to continue to be opportunistic about opening those retail stores too especially now that we feel a little bit better about our model and the returns we made on the retail stores.

And then in terms of outlets, we're opening that first store in Riverhead in a few weeks and we're pretty close in about five other deals for places like Orlando, Vegas, Houston etcetera that would be opening in 2011 and once we get those five to six stores open, I think we'll have a real good test and can really evaluate this outlook business.

Jeff Van Sinderen - B. Riley

Okay great. And then the two openings that you mentioned for full price. Generally as you are looking at new openings and working out deals over land margin you are getting a lot better terms on some of these, are they similar? Any coloring there?

Ed Rosenfeld

You are certainly getting better deals than some of the ones we signed at the height of the market but they are still tough dealing with these small guys. They were not quite as good as you might think.

Operator

Our next question comes from Claire Gallagher with CapStone Investments.

Claire Gallagher - CapStone Investments

Ed I was wondering if you could give us an update on the Big Buddha footwear and the Material Girl. I realize given the footwear just shipped in the last quarter, but any insights what you learned and really the opportunity to grow the brand. How big do you think they can get growth potential, just channel distribution? Anything you can provide would be helpful.

Ed Rosenfeld

Sure. So Material Girl we went into about 200 doors, obviously that's exclusive to Macy's and we are doing shoes, handbags and belts. We did a couple of million dollars in Q3. I think we'll do another couple of million in Q4 and then for spring, looks like they are going to expand the doors we are going to go to, I believe its 320 doors, so we are looking for growth there. It's a little too early to say how big that can be next year. We're pleased with the performance of the shoes, the shoes have done quite well and the belts have done very well, although that's a very mall I know that's a very small category, the bags have been a little disappointing. So we need to improve the product there.

In terms of Big Buddha shoes that was also about a couple of million of dollars in Q3 and we feel very good about the additional reaps there. We think this a big opportunity. We like it because the product is very different from our other brands, is very different from Steven Madden and Madden Girl and it is going to attract a different customer base and it's gotten a great response so far.

Claire Gallagher - CapStone Investments

And what channel is Big Buddha doing well in? I mean you are in different distribution channels there right?

Ed Rosenfeld

Well the biggest customer right now is Bakers. So we are going to do some of the specialty retailers. We are going to sell people like Buckle and we would like to get into the Journeys of course and it is also going to into better department stores. It will be in Dillard's and Belk's, we are going to show to Nordstrom soon and then of course it will in shoe chains like DSW.

Operator

And our next question will come from Sam Poser with Sterne Agee.

Sam Poser - Sterne Agee

Can you breakout the sort of the gives and takes on the gross margin in the quarter. You talked about mix, the Walmart, closeouts and international?

Ed Rosenfeld

Yes, it is about half mix and half closeouts and of the mix, it's about the half the increase in international and half the inclusion of the Walmart business in the top line.

Sam Poser - Sterne Agee

So it is 50-50-50-50 there. And then looking at your guidance or the implied guidance in the fourth quarter, can you gives us some idea of how you are looking at SG&A versus gross margin and so on because you implied?

Ed Rosenfeld

Yes, we expect to see some sequential improvement in gross margin. So we expect to do better than the [421] that we did this quarter and in the SG&A line we will see some leverage from last year, we are not kind of in the same kind of sales growth, so you are not going to see the same amount of leverage, but in terms of dollar growth year-over-year, we should get that back into the single digits.

Sam Poser - Sterne Agee

So slightly like over mid singles there?

Ed Rosenfeld

It makes sense, yes something like that

Sam Poser - Sterne Agee

Okay great. And then looking at your retail stores, you talked a little bit about the growth there, what is the key thing that's driving that right now, is it key items driven where you just put more inventory behind the bigger items?

Ed Rosenfeld

Yes, the overall merchandise assortment is just much stronger and we are doing a better job of planning the business and getting the right shoes in the right stores, the right times and the right quantities. We have made a lot of upgrades to our retail business over the last of couple of years. We brought in very experienced new people.

We've obviously put in the new merchandising allocation and planning system that we have talked about. So I think that's paying dividends, but at the end of the day it's because we have got some real great items right now as you pointed out as, we are doing tremendous business with booties, tremendous business with pumps and you are seeing the results.

Sam Poser - Sterne Agee

Could you walk us through the international, how much revenue was done internationally, what is like the five-year plan look like right now?

Ed Rosenfeld

Sure, we did almost $12 million in the quarter which got us up to about $30 million over the last 12 months, but again it was up 99% in the quarter, that was up after about a 50% gain last year, so that business is really accelerating. The biggest piece of it is our business in Asia with GRI, our partner over there and that's about a third of our international business right now and that business was up 126% in Q3.

So it's really flying, obviously the most important territory there is China and we are up to about 110 locations with GRI, that's 16 free standing stores and then about another 94 shop and shops. We've also been launching all these new territories, so just in the last six months we introduced I think I mentioned this earlier but Saudi Arabia, Australia, Russia and Central America and then we have got two new territories that are going to be launching early next year.

We signed up with the group called the Landmark Group which is the largest retailer in the Middle East for the UAE and we signed up with the Macintosh which is a proven retailer with 600 shoe stores in Benelux. So really excited about that and just thrilled with the traction that we are seeing internationally, so you really think this should be a $100 million business in the next four years or so.

Sam Poser - Sterne Agee

And how do you structure those distributor agreements or could you give us some idea because overtime I would think you would want to run it, once you get the chance to set up an infrastructure and do so?

Ed Rosenfeld

Yes, right now we do it all through these partnership agreements, they are partners in the local territory, they (inaudible) their retail stores, they build the stores, they own the stores, they own the inventory and we essentially sell them the goods on a direct from factory basis and then percentage of their purchases and we also get a percentage of their retail sales and right now we think that the right risk reward model down the road, where we want to own this, it's certainly possible, but right now we think this is the right model.

Operator

Our next question comes from Steven Martin with Slater Capital Management

Steven Martin - Slater Capital Management

Betsey Johnson closed before or after the end of the quarter?

Ed Rosenfeld

I believe it was the first week of fourth quarter.

Steven Martin - Slater Capital Management

So there was no impact on the income statement other than maybe you accrued some interest on the note?

Ed Rosenfeld

Right and there was actually about a $600,000 expense that we booked in Q3 because there were a couple of agreements that they had with finders for licensees, so essentially they had agreements where they had to pay a certain percentage of their royalty income to the party that had found them the licensee and we bought a couple of those out in the issue of transaction, so that was the only real impact in Q3.

Steven Martin - Slater Capital Management

And with your legal fees and transaction costs that flowed into Q3 as well?

Ed Rosenfeld

No because those have been capitalized because it's an asset purchase that were capitalized

Steven Martin - Slater Capital Management

Okay so then on to the balance sheet, what was the Betsey Johnson's impact on the September 30th balance sheet, you would bought the note, so cash was down, where is the note?

Ed Rosenfeld

There is a line called note receivable on our balance sheet.

Steven Martin - Slater Capital Management

Okay, it's not on the abbreviated when that's why I was asking the question.

Ed Rosenfeld

Yes, okay. I apologize yes. It will be obviously in the 10-Q.

Operator

Our next question comes from Scott Krasik with BB&T Capital Markets.

Scott Krasik - BB&T Capital Markets

You guys actually do a pretty good job returning value to shareholders. You have done a loss this year. From a strategic perspective, do you have your hands full or share buyback for consideration at this point. Any comment there would be great.

Ed Rosenfeld

Yes, share buybacks are definitely still a consideration. We did a little bit earlier this year, I believe it was in the second quarter, we did about 5 million and we still have about $45 million in our authorization. I would say that in terms of uses of cash, our first priority would still be to do strategic acquisitions to the extent we could find more things like Betsey Johnson and Big Buddha. We think is our best use of cash, those are going to provide us with really outsized returns on our investment, but absent that we'll certainly continue to look at share repurchases.

Scott Krasik - BB&T Capital Markets

Okay and in terms of anything on the horizon strategic wise?

Ed Rosenfeld

Well we're always looking at things, but there is nothing imminent.

Operator

And with that I would like to turn the call back over to our presenters for any final and closing remarks.

Ed Rosenfeld

Okay great. Well thanks to everybody for joining us on the call and we look forward to speaking to you again on the next call. Thanks.

Operator

And once again ladies and gentlemen, this does conclude today's call. Thank you for your participation and have a great day.

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